The Institute of Financial Accountants (IFA) has called on the government to halve the amount of turnover small to medium enterprises (SMEs) need to qualify for gross payment status under the Construction Industry Scheme (CIS).

The IFA was responding to a consultation on improving the CIS launched in June this year.

Gross payment status – whereby a contractor pays a business in full, without deductions for tax or National Insurance and the business has to take care of its own tax and National Insurance affairs – is dependent on three tests.

First is the business test, in which a company has to show that it does construction work and is run through a bank account; second is the turnover test, currently set at no less than £200,000; and third is the compliance test, relating to timeous tax returns.

The IFA argues that a turnover limit of £100,000 would allow more businesses to apply for gross payment status, in particular, contractors who incur significant materials costs and who are currently excluded from registering for gross payment status.

IFA chief executive David Woodgate said: “The additional flexibility provided in the reduction of threshold level and the proposed relaxation of the compliance test are welcomed. Although there may be challenges for certain contractors to meet their compliance obligations, the move to bring CIS online appears sensible and long overdue.